The cryptocurrency market has experienced something between a bear market and a crash (depending on who you ask) for the last 5 months and signs have not stabilized yet that it’s out of the woods. Bitcoin (BTC-USD) has fallen from highs near $19,000 to just over $6,000 and Ethereum (ETH-USD) (the number two coin) has fallen from $1500 to under $500. The market itself has seen about the same 75% correction as these two (which combine for just about 60% of the market itself).
Many have pointed out the air that’s been sucked out of the once rocket-ship that is crypto, and I think that’s true of many coins (including Bitcoin) but think Ethereum will grow out of this, and perhaps take over the #1 spot in market share by end of year (those in the business refer to this as “the flippening”). There’s a whole site dedicated to it that features many of the charts in this article.
Let’s start with the news: where the social sentiment on Bitcoin (and other cryptos by proxy) has been negative. Bitcoin has been implicated in a United States government investigation into Russian hackers, as their currency of choice. Coins are being identified as a key element for underground gambling rings; and with the World Cup just ending, the world saw its most “global” betting opportunity.
With prices down and attitudes souring on the possibility, it seems like it’d be dark times for crypto. My argument is that it’s not that the very things that crypto set out to do are mirrored in stories like these. Anonymity, quick trading, trustless blockchain gambling, etc… It’s just happening before the public is quite ready, and being adopted by both early investors interested in the technology, and folks looking to exploit these benefits.
But that’s a whole other story. The point I want to make with that comment is that cryptocurrencies work. Or some do. Others don’t, and those closer to the world are seeing crashes and security issues with coins as big as EOS.
What that means for Ethereum is that there’s a place to marry the concerns of the public and the enormous benefits of this technology. It is singularly and supremely in place to capitalize on this.
The reasons are: investor interest seen in a stabilized market share, enterprise interest seen in EEA and beyond, and price fundamentals that will allow to it rise above the bear market and recover.
First, on market share. We saw a bear market for some time in Q3 2017, and in the chart below (from Flippening.watch), you can see the Ethereum market share steadily declining as Bitcoin does the inverse. It’s an isolated time period, granted, and we don’t have a lot of historical info to really analyze since Bitcoin was the only player for some time, but you can see that Q2 2018 is different. Ethereum hasn’t just maintained market share, it’s seen a very slight increase. And the months of Bitcoin’s rise did not correlate to an Ethereum drop.
What does this tell us? Unlike 2017, buyers aren’t ignoring or dumping ETH-USD to get BTC-USD, instead they’re either holding BTC-USD or buying both simultaneously.
It also helps that many more trading pairs have been added with ETH-USD, so that BTC-USD isn’t the only currency to use to trade for “alt” coins like Cardano, Stellar, or Vechain, all billion dollar coins without major fiat (national currency) gateways. The first two have them, but the fiat gateway often accounts for less than 25% of trading, though that could change if and as they are added to popular trading site Coinbase.
For those unaware, the way that the ETH-USD token earns its value is in supplying transactional power to the Ethereum blockchain. One needs ETH-USD to “use” the chain, an example of which would be sending some Ethereum-based coin from one place to another. So transaction volume, unlike economic perception which could set BTC-USD price, is vital. How is that looking?
Mostly good. ETH-USD continues to be used and to “gas” the network. As more users want to acquire the necessary ETH-USD to power their blockchain activity, and total supply of ETH-USD levels off (it continues to grow each day, but by less as time passes).
More expansion on this is needed, of course, but the bear market hasn’t suspended use or confidence in ETH-USD as a platform.
How does ETH-USD get the expansion needed to truly underline ETH-USD tokens with serious value?
Well, enterprise and vast usage is one way. And in this case, it’s well on its way.
Another example is blockchain powered industry – an example here is medical innovation and pharma research, a niche that could benefit from exact record keeping.
And that’s just one area. Ethereum has compiled a laundry list of some impressive names as part of its Enterprise Ethereum Alliance – and companies in all sorts of spaces are looking to hire engineers that understand the language that powers the blockchain here. Just this year, we’ve been inundated with different sectors using Ethereum, from major league baseball, to real estate, to journalism.
The question on the Ethereum tech side is how it can handle this volume, which the team addressed just last week as it moves until Phase 2 of its development for serious scaling. The launch of Augur, representing a significant application using significant blockchain transactional power is a very promising one.
While Bitcoin needs spender confidence to legitimately become the currency investors are looking for, Ethereum needs to fulfill its promise of technical prowess. And lots of very talented people are looking to do that. As transactions increase, “gas” and “gwei” should push the price higher and remove us from a purely speculative price consensus.
On price fundamentals, there are two ways to look at ETH-USD. You can do so from a macro market perspective, which would see ETH-USD rising (even leading) and entire market recovery. For thoughts on that, you can read this long Bitcoin price analysis, wherein the author calls for a down market until near September where he sees a pivotal change occurring.
Still, we’re seeing a bounce back now and as this author points out, Ethereum has had some very solid supports (some at $460, others at $475, and a lot at a bottom price of $420). You can see more technical analysis here, where many are using key indicators to call for a bullish return. Another view here uses MACD to set a target price of $500 in the near term.
The second view would be a decoupling of ETH-USD from BTC-USD and others. As you can see in its trading volume, a substantial percent (84%) of ETH-USD trades still come from BTC-USD or USDT-USD pairings. We’ve seen a small uptick in USD to ETH-USD trading, and I expect that to continue. One way that will is if Coinbase adds 0x and/or Basic Attention Token on its platform, which are both Ethereum-backed coins. The buying and movement of these will require ETH-USD gas and should continue to up the necessary power of the network. Coinbase has also expressed interest in more ERC20 (Ethereum-based) coins. So that’s good news.
ETH-USD has had its fall along with the rest of the market and hasn’t shaken off its relationship with BTC-USD. But we’re seeing indicators, from transactional volume, to future interesting, to early signs of that decoupling that make this an attractive buy in the space. More so than BTC-USD in my mind, but we’ll see how that shakes out. A market recovery will lift all tides, but I think the long-term belongs to ETH-USD.
Disclosure: I am/we are long ETH-USD.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.